IFS have important data on public sector pay

The Institute for Fiscal Studies published their Green Budget last week in which they look at the Chancellor’s options in the forthcoming budget. It is not exactly a bundle of laughs.

But they do have an extremely useful round up of trends in public sector pay. Richard has already drawn attention to their statement:

Overall, pay levels in the public sector are probably not significantly out of line with those of similar workers in the private sector, once you take into account factors such as their age, education and qualifications.”

But there are also some good historical facts on public sector pay trends that help rebut the claims of the small-state right that public sector workers now enjoy an unprecedented pay bonanza thanks to Labour’s supposed largesse.

They suggest, for example, that while simple arithmetic means that you can ‘save’ money in the short-term by cutting or freezing public sector pay that this cannot be sustained unless you cut the number of staff .

… given the tendency for public sector workers to ‘catch up’ following periods of pay restraint, further cuts in the public sector workforce are more likely to deliver the lasting reductions in public spending as a share of national income sought by the Treasury.

In other words, just as in the past, periods of pay slowdown in the public sector are always followed by pay increases once the public sector starts suffering inevitable morale, recruitment and retention issues. Fig 9.2 of their report shows just how much the public sector suffers from boom and bust. It also reveals that the public sector has been losing jobs since 2006.

Fig 9.1 in the IFS report also shows that public sector staff have not done particularly well under Labour if you look at public sector pay as a share of national income. Even excluding people in the nationalised industries, the public sector took 11 per cent of national income as pay in 2008. This is lower than in almost every year that Mrs Thatcher was Prime Minister.

As in other areas Labour has reversed the Conservative direction of travel but only to a certain extent:

Conservative governments from 1979 to 1997 reduced headcounts on average by 2.0% each year (in large part through privatisations) while increasing real cost per head by 1.4% a year. The Labour government, on the other hand, has increased headcounts yearly by 1.0% as well as increasing cost per head by 2.3% a year over the period from 1997 to 2008. However, most of the increase in the public sector pay bill was concentrated during the period 2000–05, with costs per head rising by 3% per year in real terms over this period. Note that reductions in the public workforce started in 2006, before the financial crisis.

But before people jump to conclusions about the 3 per cent cost per head increase under Labour, it doesn’t mean that every public servant had a consistent 3 per cent real terms pay rise, or even that on average pay rates went up 3 per cent.

Much of this increase will be due to the simple fact that a higher proportion of the public sector workforce are now graduates doing better paid jobs. If you freeze everyone’s pay in the public sector, but increase the number of teachers and reduce the number of school meal assistants then cost per head will still increase.

The IFS explictly endorce Ben Goldacre’s critique of the Sunday Times analysis that Nigel Hawkes of Straight Statistics defended on this blog.

Comparing public and private sector remuneration is always a tricky business. The two sectors are different. Public sector staff have, on average, higher qualifications than those in the private sector, as they provide services that are skill-intensive (health, education etc.). As a result, raw comparisons between the two sectors will overestimate the public sector pay premium. Examples of misuse of these raw statistics abound. They were recently underlined by Ben Goldacre’s ‘Bad Science’ column in The Guardian, where he stressed how misleading comparing average public and private sector pay could be.

They instead conclude from some new analysis:

The results from this careful study show that on average ‘public sector pay differentials do not seem to depart strongly from zero’. Whereas the raw differential – not controlling for composition differences – suggests public sector premiums of 15% and 22%, respectively, for men and women in 2005–06, the more meaningful estimates are closer to 2% and 4%. Obviously, these are average figures that could easily hide groups of workers with large positive or negative wage differentials, but the overall finding – and the extent to which it is reduced by taking account of some observed differences in the composition of the public and private sector workforces – is nevertheless instructive.

I’ll be returning to this report in some follow up posts.

Written by Nigel Stanley

I was the TUC’s Head of Campaigns and Communications until semi-retiring in May 2015, I started at the TUC in 1994.
My interests cover a wide range of communications and politics related issues, but if I have a specialist subject, it's pensions…

[…] new public servants pen-pushers? Posted at 2:25 pm on 10 Feb 10 by Nigel Stanley The IFS data – which I looked at yesterday – also has a useful table showing which sectors have seen growth in public sector staff since […]